Lamar Advertising (LAMR)

January 9, 2020

COMPANY DESCRIPTION

Lamar Advertising (LAMR) owns and operates outdoor advertising structures. In November
2014, it changed its corporate structure to a REIT. It operates approximately 156,900 billboards
in 45 states and Canada including 3,100 digital billboards. Lamar Advertising also manages
highway logo signs, with about 149,000 logo displays in the U.S. and Canada. Sales divided by
industry group are: Service (13%l), Restaurants, (11%), Retailers and Health Care, (10% each).

INVESTMENT THESIS

LAMR is likely to report solid earnings over the next 4-to-5 quarters according to our
projections. Despite the emergence of such advertising giants as Facebook and Google, outdoor
advertising is likely to remain a profitable business. As a higher percentage of billboards is
digitized. Lamar’s sales and earnings are likely to benefit. Moreover, many established brands
have been losing market share to less-costly private-label brands. Companies are realizing that
they need to increase spending on advertising to grow or even maintain their current market
share. Lamar uses a fragmented market to its advantage. It has been an active acquirer of
complementary firms for some time.

To grow its signage infrastructure, it often purchases small regional sign businesses. We expect
these acquisitions to continue.  Management is focusing its efforts on digitalization. More than
half of the company’s capital expenditures year-to-date have been spent on electronic billboards.
Unlike older billboards, digital billboards are able to be updated many times daily. In addition to
offering a 4.36% dividend yield and a secure dividend, the shares are likely to outperform the
broader market in the year ahead.

RECENT DEVELOPMENTS

Lamar reported third-quarter 2019 adjusted FFO (AFFO) per share of $1.62, topping the
consensus estimate of $1.59. Net revenue for the quarter was $458 million, which surpassed the
consensus estimate of $453 million. The company’s impressive quarterly performance reflected
solid revenue growth, helped by an increase in both local and national advertising revenues.
AFFO per share was up 7% and net revenues increased 9%, on a year-over-year basis.
Acquisition-adjusted net revenues grew 3%, while acquisition-adjusted earnings before interest,
taxes, depreciation and amortization (EBITDA) were up approximately 6%. LAMR saw 3%
increase in local revenues, and 7% growth in national/programmatic revenues. Operating income
increased 10% from the same period a year earlier to $141 million. Adjusted EBITDA rose 12%,
year over year, to $215 million. In addition, free cash flow of $138 million in the third quarter
improved 6% year-over-year.
EARNINGS & GROWTH ANALYSIS

Following weak results in 2018, we estimate that Lamar’s AFFO will grow 6% in 2019, to $6.00.
In 2020, a record amount is likely to be spent on election campaigns, which should result in
AFFO rising 7%, to $6.42

RISKS

Higher capital expenditures and expenses associated with acquisition of outdoor advertising
assets as well as intense competition from other outdoor advertisers are risks for the company.

VALUATION

Our target price of $106 implies a multiple of 16.5 times our 2020 AFFO estimate. Given
Lamar’s solid  growth prospects and high dividend yield, we believe the shares are undervalued.
Our target, if achieved offers investors the prospect of a 24% return, including its very attractive
dividend.

Lamar Advertising (LAMR)

Current Price: $88.71

Target Price: $106

Current Valuation: 13.8 times FY20 EPS

Target Valuation: 16.5 times FY20 EPS